What is Contract Analytics?
How can organizations ensure that all legal agreements are consistently reviewed for risks and errors? How can legal teams maintain compliance with preferred positioning and successful fulfillment of contractual obligations? What is needed to conserve resources, mitigate risk, and fuel business growth?
If your corporate legal department is asking itself these questions, the following statistic may hold the answer: By 2024, AI-based contract analytics solutions will reduce the amount of manual effort expended on contract review by 50%.
Due to increases in volume and complexity, businesses now require contract intelligence solutions to answer difficult questions, find innovative ways of doing more with less, and increase the pace of growth.
This article will answer three key questions: What is contract analytics? What measurements matter? And how can technology aid in the contract analysis process?
What is Contract Data and What Should Lawyers Measure?
Contract data, derived from contract analysis, pertains to information signifying patterns within agreements which can then be used to generate meaningful business insights. Traditionally, this type of information was cherry-picked manually by comparing various contracts across a portfolio. Today, much of the work is done using contract analysis software.
Lawyers may use technology to capture important metrics such as:
- Absence or presence of auto-renewal clauses
- Arbitration clauses
- Escalation triggers
- Expiration and renewal dates
- Force majeure clauses
- Maximum liabilities
- Missing clauses or provisions
- Nonstandard language
- Payment terms and schedules
- Regulatory risks
- Vague language
There are countless use cases where aggregated data can transform a business; for example, when dealing with a large volume of purchase agreements, knowing whether a particular clause is present across every contract with consistent language is something contract analytics software can help determine within minutes. Accordingly, a company may decide to amend or renegotiate based on these findings.
Another use case might be to analyze contract performance based on the presence or absence of certain clauses. A business might look at which clauses senior counsel are most commonly revising due to escalations and renegotiations.
There are other metrics to consider as well, such as how long it takes for a contract to close, which clauses impact sales velocity, and what percentage of contracts are unable to be fulfilled.
How Can Technology Speed Up Contract Management?
While it’s not too surprising that technology plays a huge role in streamlining contract management, let’s break down the latter’s four components to see how integrating technology in each one can offer true value.
The four components of contract management include:
- Drafting: Contracts are drawn up using corporate legal playbooks, clause libraries, contract templates, and best practices.
- Review: Contracts are assessed for errors, omissions, and risks, preferably using a corporate legal playbook.
- Negotiation: Contracts are passed back and forth between parties to look for areas of improvement, preferred positioning, and necessary fallback provisions.
- Post-execution: Once the contract is signed and approved, it moves into a period of performance and renewal tracking. Renegotiation may be necessary at a later date.
It’s easy to see how contracting processes can absorb a tremendous amount of manpower without the right processes, tools, and technologies in place. But using technology during contract analysis can greatly speed up the review process, for example, and provide meaningful insights into contract terms and scope. Automating the analysis of contracts can also save legal teams time and money as their hours are freed up for higher-level matters.
Automated contract analytics technology can help teams:
- Maximize resources and reduce manual labor associated with contract review.
- Ensure that required language is included in every contract, without fail.
- Identify passages that are vague, ambiguous, and open to interpretation.
- Track deadlines, deliverables, and obligations that the company may be unable to fulfill.
- Locate clauses that stall the pace of business or require frequent revisions.
In wondering what is contract analytics, legal teams are really asking themselves how they can gain actionable insights into their business and what can they learn from the way they initiate relationships. Whether it’s relationships with suppliers, vendors, subcontractors, or customers, these agreements ultimately determine whether a business can compete and thrive well into the future.
Optimize Your Contract Review Process with LexCheck
LexCheck provides intuitive, fully automated contract guidance to help legal teams improve their review and negotiation processes by applying the knowledge gained through analytics of past contracts.
Founded by Gary Sangha, former Am Law 100 associate and Stanford CodeX Fellow, LexCheck’s revolutionary technology is designed to mitigate errors, omissions, and oversights during contract review—reducing manual labor and speeding up the process of due diligence. And with lawyer-caliber accuracy plus the ability to reduce review times by 90%, it’s a pre-execution solution that any corporate legal department can’t afford to do without.
The pandemic has rewritten the future of commercial contracts. At the average company, routine business agreements touch 26% of the workforce at some point. Of those impacted, 25% of their time is absorbed by low-value, low-complexity tasks. It’s clear something needs to change. As businesses are driven to work smarter and the need for agility increases, contract analytics sits at the center of a competitive strategy moving forward.
Gary Sangha | Founder & CEO
Gary Sangha is the Founder and CEO LexCheck. He's a serial entrepreneur and an academic. Gary previously founded Intelligize, a legal technology company that was acquired by LexisNexis. He's affiliated with the University of Pennsylvania and Stanford University and started his career as an attorney at Shearman & Sterling and White & Case.